Convictions of Two Accounting Execs May Wrap Up Prosecutions for Stanford Ponzi Scheme

In federal court in Texas yesterday, prosecutors in the Stanford Financial case won convictions against Gilbert Lopez Jr., the former chief accounting officer for Stanford Financial Group, and Mark Kuhrt, the former global controller of Stanford Financial Group Global Management. The convictions appear to mark the end of the many criminal prosecutions that resulted from the massive Stanford Ponzi scheme that began to unravel in early 2009.

According to a Bloomberg report, both Lopez and Kuhrt were found guilty of 9 of 10 wire fraud counts and one count of conspiracy to commit wire fraud. Prosecutors alleged that the men helped hide the company's scheme that involved bogus certificates of deposit at Antigua-based Stanford International Bank Ltd. Sentencing for Lopez and Kuhrt is set for February 14, and they both face prison terms of more than 20 years. Lawyers for the men acknowledged that there was "massive fraud" going on at the company, but that Lopez and Kuhrt had themselves been deceived by Allen Stanford and the company's former CFO, James Davis.

Earlier this year, Allen Stanford was found guilty by a jury on thirteen counts, including charges of conspiracy, mail and wire fraud, and obstructing a Securities and Exchange Commission investigation, and sentenced to 110 years in prison (along with a personal money judgment of $5.9 billion against him). Davis pleaded guilty back in 2009 to three counts of conspiracy to commit mail, wire, and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation. He has been cooperating with the government's prosecutions of others such as Lopez, Kuhrt, and former Chief Investment Officer Laura Pendergest-Holt, and has yet to be sentenced.

With the trial of Lopez and Kuhrt now completed, all of the criminal trials from the Stanford case now appear to be wrapped up. The final Stanford scorecard looks like this:

• R. Allen Stanford (former Chairman of Stanford International Bank): Convicted on June 14, 2012 on 13 counts (one count of conspiracy to commit wire and mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct an SEC investigation, one count of obstruction of an SEC investigation and one count of conspiracy to commit money laundering). Sentenced to 110 years in prison.
• Laura Pendergest-Holt (former Chief Investment Officer): Pleaded guilty in June 2012 to obstructing an SEC investigation into Stanford International Bank. Sentenced in September 2012 to 36 months in prison, followed by three years supervised release.
• James M. Davis (former CFO): Pleaded guilty in April 2009, to three counts (conspiracy to commit mail, wire, and securities fraud; mail fraud; and conspiracy to obstruct an SEC investigation). Has not yet been sentenced.
• Gilberto T. Lopez (former Chief Accounting Officer) and Mark J. Kuhrt (former Global Controller of Stanford Financial Group Global Management): Convicted in November 2012 on 9 counts of wire fraud counts and one count of conspiracy to commit wire fraud. Scheduled to be sentenced on February 14, 2012.
• Bruce Perraud (former global security specialist at Stanford Financial Group) and Thomas Raffanello (former global director of security at Stanford Financial Group): Perraud and Raffanello were both acquitted by the judge presiding over the case against them. Prosecutors had alleged that the men conspired to obstruct an SEC proceeding and to destroy documents in a federal investigation.

Stanford Officer Pendergest Holt Said to Have Plea Deal

By Laurel Brubaker Calkins and Andrew Harris
 
Laura Pendergest Holt, the former chief investment officer for R. Allen Stanford, has agreed to plead guilty and serve three years in prison for her role in a $7 billion fraud, three people familiar with the matter said.

Pendergest Holt, 38, will plead guilty to a single obstruction charge, said one of the people, all of whom asked not to be identified because the plea agreement isn’t public.

She faces a September trial on charges related to those that resulted in Stanford being sentenced on June 14 to 110 years in prison. Prosecutors had requested a maximum sentence of 230 years against Stanford, based on investors’ losses on bogus certificates of deposit sold by Antigua-based Stanford International Bank Ltd.

Pendergest Holt has denied wrongdoing. Dan Cogdell, her lead attorney, didn’t return phone and e-mail messages yesterday seeking comment on a plea agreement. Pendergest Holt is scheduled for re-arraignment on July 21 in federal court in Houston, according to court records.

Pendergest Holt had told Stanford Financial Group Co. investors and the firm’s financial advisers that she oversaw a stable of international money managers who were responsible for the bulk of the bank’s assets, according to court papers. She may have had authority over as little as 20 percent of the bank’s assets, according to testimony during Stanford’s trial.

Three-Year Affair

Prosecutors charged her in June 2009 with conspiring to mislead investors in conjunction with Stanford and Chief Financial Officer James M. Davis, her boss and former lover. During Stanford’s trial, Davis told jurors he had a three-year affair with Pendergest Holt that ended in 2003, and that Stanford approved of the romance between his two top deputies.

Alisa Finelli, a Justice Department spokeswoman, declined to comment on the reported plea agreement.

Stanford, 62, was convicted in March by a federal court jury in Houston of leading a massive fraud in which later investors’ funds were used to pay above-market returns to earlier investors. He was accused of secretly borrowing more than $2 billion in depositors’ funds to finance a lavish lifestyle and several money-losing businesses.

Stanford is appealing his March 6 conviction and his sentence.

Joan Stack, former global human resources manager at Stanford Financial Group, testified during Stanford’s trial that Davis and Pendergest Holt routinely hired unqualified relatives and fellow church members to staff most positions in the Memphis, Tennessee, research division that oversaw the bank’s multibillion-dollar investment portfolio.

“They were family members who had no experience in doing what we’d hired them to do,” Stack said.

Holt invested about $2 million of the bank’s portfolio in a hedge fund run by her husband, a former personal trainer, according to testimony.

The case is U.S. v. Stanford, 4:09-cr-0342, U.S. District Court, Southern District of Texas (Houston).

In the Madoff mould?

The fraud trial begins on Monday of Allen Stanford, the billionaire who bankrolled English cricket.

By Stephen Foley (The Independent)

When the Texan financier Allen Stanford swept into English cricket in 2008, landing his helicopter at Lord's and wheeling a chest containing $20m in new banknotes in front of the cameras, traditionalists decried the debasement of the sport by the lure of filthy lucre. What they didn't know then, and what we are about to find out now, is whether Mr Stanford's lucre was indeed filthy.

This weekend, Mr Stanford's lawyers are furiously and reluctantly preparing for the trial that will decide if that $20m, and hundreds of millions or billions more, was the proceeds of a spectacular fraud.

In 14 criminal charges, he is accused of using his business on the Caribbean island of Antigua to perpetrate a $7bn pyramid scheme, an alleged fraud second in size only to that of Bernard Madoff. He was aided, prosecutors say, by a gang of associates who conjured fake investment returns from their imaginations, falsified documents and funnelled cash from Swiss bank accounts to fund his sports sponsorships and his extravagant lifestyle. In the trial's most eye-popping allegation, he is said to have sealed the co-operation of Antigua's chief bank regulator through a bizarre "blood brothers" ritual.

For 20 years, his indictment alleges, Mr Stanford and his co-conspirators solicited deposits from more than 20,000 people across the US and Central and South America and, "contrary to their representations to investors, they misappropriated a significant percentage of the proceeds ... to finance his personal, failing business ventures and for his own use and enjoyment, including personal living expenses, several yachts and private jet airplanes and numerous residences around the world".

"Yes," Mr Stanford had answered, smirking, in one television interview before his arrest, "it is fun being a billionaire – but it's hard work". Just how hard is dealt with in by court documents filed in Houston, which set out the lengths to which Mr Stanford is said to have gone to conceal his alleged fraud – as told to prosecutors by his right-hand man and one-time university roommate, Jim Davis.

"When the chief financial officer flips and agrees to testify for the prosecution, this is extremely bad" for a defendant, says Andrew Stoltmann, a securities attorney who has represented investors in cases against a string of banks and insurers. "Similar situations happened in the Enron trial and the Worldcom trial. Jurors tend to find their testimony to be very persuasive." Whether this will be the case here remains to be seen.

Mr Stanford built a network of testosterone-fuelled salesmen who touted his investment products, Mr Davis claims, in testimony that he will repeat in court during the six-week trial. This sales force hawked fabricated investment data that purported to show a miracle-grow investment strategy at work, while the company's founder creamed off several billion dollars as bogus loans. The $7.2bn Stanford International Bank (SIB) claimed to have built on behalf of its clients was in reality as little as $500m. The alleged co-conspirators at the top of the firm will be tried in the summer, separately, and it remains an open question whether Leroy King will be among them. Mr King is the main reason US regulators' investigations into SIB ran into the sand. He was chief executive of the Antiguan Regulatory Commission, a man the prosecution claims was bought and paid for by Mr Stanford. But Mr King has been fighting extradition from Antigua, saying local banking secrecy laws meant he could not assist US investigations. As part of his plea bargain, Mr Davis claims that Messrs Stanford and King took a "blood oath", sealed by cutting themselves and mingling their blood.

Mr Stanford entered a not guilty plea last week, and has argued before that if there was any illegal activity at his firm, it must have been the work of Mr Davis or his other underlings. His lawyers are also preparing to argue that the firm was solvent, properly investing its monies, and returning cash to anyone who asked – until the federal authorities swooped and destroyed the business.

The charges against Mr Stanford in 2009 caused a sensation. Panicked investors thronged his operations in Antigua, Caracas and Panama City, among other business centres, demanding their cash back. Those who had been lured by the too-good-to-be-true returns of his Antiguan certificates of deposit are still fighting to get back pennies on the dollar.

Mr Stanford's personal decline has been perhaps even more striking than his business losses. Barely three years ago, he was the brash Texan, famed for fathering six children with several women, pictured bouncing the wives and girlfriends of the England cricket team on his knee, and caring not a damn about the outrage he was causing. His $100m Twenty20 sponsorship had made him a giant in the sport.

But as civil and then criminal charges mounted, he appears to have lost his bearings. He was interviewed drunk and weeping on television, protesting his innocence. His fiancée, Andrea Stoelker, told The Independent the couple were "living on the charity of my family". In custody in Texas, he was beaten by fellow inmates so brutally that he sustained brain damage and, claim his lawyers, became addicted to painkillers.

The trial was delayed by a year, but Houston Judge David Hittner ruled this month that Mr Stanford was finally fit to face a jury. His lawyers were still begging to differ last week but they now say their client may even take the stand in his own defence next month.

What will be revealed if he does? Thousands of out-of-pocket investors want to know if they were duped and, if so, whether it was by a Walter Mitty character or a cold and calculating fraudster in the Madoff mould. The trial begins on Monday.

Dramatis personae: Key figures in the trial

The accused, Allen Stanford

The 61-year-old Texan turned his sleepy family finance firm into an offshore powerhouse that dominated Antigua and provided him with the life of a playboy. The England and Wales Cricket Board fawned as he promised to lavish $100m on Twenty20 cricket.

The betrayer, Jim Davis

Mr Stanford's university roommate and his right-hand man as he built his empire. Faced with the prospect of years in prison, Mr Davis, has turned evidence for the prosecution, alleging that the pair plotted to fabricate profits and lure investors.

The judge, David Hittner

Hittner has already declared he will brook no nonsense. He has banned lawyers from talking about the case outside the court, and had no truck last week with the idea Mr Stanford was unfit to face a jury.

The 'conspirator' Laura Pendergest-Holt

The first person to receive a criminal indictment in the case, she was in the front line with the federal authorities came to investigate the alleged pyramid scheme in 2009. She is charged with obstructing their inquiries, as well as helping Mr Stanford dupe his sales staff into believing they were marketing world-beating investment products.

The bank regulator, Leroy King

The prosecution alleges Mr Stanford showered the Antiguan official with bribes, including impossible-to-get tickets to the US Super Bowl and tens of thousands of dollars in cash from Swiss bank accounts, and even swore a blood oath to win his assistance in shielding Stanford International Bank from prying eyes. He says local laws mean he cannot assist the SEC.

Stanford’s Co-Defendants Try to Flee the ‘Circus’

Just like you don’t get to pick your family, defendants accused of being members of a conspiracy have to live with one another, even though that means a jury may lump them together in deciding their guilt. Executives from the Stanford Financial Group charged with participating in a multibillion-dollar Ponzi scheme are learning this lesson as they deal with what one described in a legal brief as the “circus” surrounding their co-defendant, R. Allen Stanford, the firm’s founder.

White-collar crime prosecutions usually involve multiple defendants, and a conspiracy charge is often at the heart of the case. That charge means a single trial involving all the defendants, even though they may have differing levels of culpability and one may be the lightning rod in the case.

Laura Pendergest-Holt, former chief investment officer at Stanford Financial, filed a motion last week asking to have her trial severed from her co-defendant because of what she called the “egregious and circus-like conduct” created by Mr. Stanford and his current lead counsel. Indeed, her brief uses the word “circus” no fewer than eight times in describing what has taken place in court.

Two other co-defendants, the firm’s former chief accounting officer and its controller, have joined her severance motion, trying to put as much distance as they can between their trials and Mr. Stanford’s.

Under Federal Rule of Criminal Procedure 8(b), prosecutors can charge defendants in a single indictment if they participated “in the same series of acts or transactions.” A conspiracy charge is the typical means for bringing different defendants together into a single case because it can be such a wide-ranging offense, sometimes covering years of conduct. So long as the government shows there is a reasonable basis to believe each defendant participated in the criminal agreement, they can be tried together.

There are many dangers to defendants in a joint trial, the most significant being the potential “spillover effect” from the evidence showing the culpability of other members of the conspiracy. Under conspiracy law, the acts of each accused conspirator can be used against all the other accused members.

Especially when one defendant is controversial, jurors may focus on that person and view the others as simply trailing the leader’s wake. Once convinced of the primary defendant’s guilt, it is easy for a jury to conclude that the others should be convicted.

A co-conspirator can seek to have the trial severed from other defendants under Rule 14(a) if a joint trial “appears to prejudice” the person. Of course, prejudice does not mean just that the jury is more likely to convict if they are tried together, so a defendant asking for a severance has the burden of showing significant problems that would call into doubt whether the person could receive a fair trial.

Mr. Stanford’s defense has been rather disorganized to this point, and his conduct in court has not gone over well with Judge David Hittner in Federal District Court in Houston, who is presiding over the criminal case. The Wall Street Journal recently noted that 10 different law firms had represented Mr. Stanford since the Securities and Exchange Commission first filed civil fraud charges in February 2009 accusing Stanford Financial of operating a Ponzi scheme.

Unfortunately for Ms. Pendergest-Holt and her co-defendants, the actions of Mr. Stanford may not be enough to have their case separated from his. Judges have a strong preference for conducting a single trial when the bulk of the evidence will be the same for each defendant.

There is a much stronger case for granting the severance motions in the insider trading prosecution of Raj Rajaratnam, the billionaire founder of the Galleon Group hedge fund, and Danielle Chiesi, his indicted co-conspirator. In that case, the government contends there were seven different conspiracies to trade on information in different companies from a variety of sources, but only one conspiracy charge accuses both defendants of agreeing to trade on inside information. There is significantly less overlap in the Galleon case, so they have a better chance of winning their motions.

In the Stanford prosecution, all of the defendants are named in the primary conspiracy, mail fraud and wire fraud counts, and there appears to be a significant overlap in the evidence against them. Ms. Pendergest-Holt is also named along with Mr. Stanford in additional counts alleging obstruction of justice, an even greater confluence of the evidence that will be used against them at trial.

The government is likely to strongly oppose the severance motion because it does not want to expose its witnesses, particularly the former chief financial officer of Stanford Financial, who is cooperating in the case, to multiple court appearances to testify.

Even when there is overlapping evidence, judges are more sympathetic to a severance motion when it appears that a joint trial puts the defendants in the position of offering antagonistic defenses, such as when each blames the other for pulling the trigger.

The conflict described in Ms. Pendergest-Holt’s brief between Mr. Stanford and his co-defendants appears to focus more on how his conduct makes it difficult to trust how he will act at trial and less on what their actual defenses to the charges will be.

While Ms. Pendergest-Holt and her co-defendants may try to shift as much blame as possible on to Mr. Stanford, that could require them to testify in order to point the finger at him. That is always dangerous because the jury could perceive them as taking the easy way out once they were caught and conclude that they all acted together.

Even when there is blame-shifting among the defendants, courts usually reject a request for separate trials and instead rely on jury instructions that the evidence against each must be weighed separately. Whether that keeps a jury from lumping the whole group together is an open question.

It is often the case that defendants in white-collar crime prosecutions cooperate on their defense and even enter into a joint defense agreement in order to present a united front. That is certainly not the case here, as Mr. Pendergest-Holt and her co-defendants want to avoid having Mr. Stanford dominate the trial and, if he chooses to testify, come across poorly to a jury.

While a joint trial would certainly make it more difficult for the other defendants to avoid the taint of being linked to Mr. Stanford, this is not the type of prejudice under Rule 14(a) likely to lead separate trials involving the same core of evidence. Judges do not want to listen to the same evidence all over again when the case can be tried once, even if that comes at the cost of putting antagonists together at the defense table.